AvalonBay Communities’ Revenue Analysis

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Current revenue

The recent financial statement for the company shows that the income statement rose from $1,000,627 thousand in 2012 to $1,462,921 thousand in 2013. The total revenue increased further to $1,685,061 thousand in 2014 (Avalonbay Communities, Inc., 2015). In the financial statements of AvalonBay Communities, the same storage pool is also known as established communities. These are consolidated communities where comparison of operating results for different periods is important. This is based on the fact that the communities were owned and had a steady occupancy at the beginning of the financial year. A community is considered to have a stable occupancy if it has attained a 95% physical habitation or if one year has elapsed after conclusion of development. Further, the classification of these communities is carried out at the beginning of the year. Based on this classification, the total revenue generated from the same store pool rose from $927,821,000 in 2013 to $963,917,000 in 2014. This is an increase of $36,096,000 or 3.9%. Further, the revenue for the non-same store pool rose from $535,100 thousand in 2013 to $721,144 thousand in 2014 (Avalonbay Communities, Inc., 2015).

Growth rates

The table presented below shows the growth rate for revenue, net operating income and FFO for the past three years.

2012 2013 2014
Revenue 1,000,627 1,462,921 1,685,061
Growth rate 46.20% 15.18%
Net operating income 667,928 977,998 1,134,096
Growth rate 46.42% 15.96%
FFO 521,047 642,814 951,035
Growth rate 23.37% 47.95%

In the table above, it can be observed that the total revenue grew by 46.20% in 2013 and further by 15.18%. The net operating income also grew by a similar rate as revenue that is 46.42% in 2013 and 15.96% in 2014. The net operating income gives information on the income earned from the core operating activities of the community. Further, FFO rose by 23.37% in 2013 and 47.95% in 2014. The growth in revenue is mainly attributed to the 4% rise in average rent rates. The weighted average monthly revenue for each occupied home rose from $2,017 in 2012 to $2,171 in 2013. The value further rose to $2,273 in 2014. A review of the company shows that the annual growth rate over the last five years is 26.05%. Thus, based on the current performance, economic conditions, and performance of the industry, the management of the entity and various analysts are of the opinion that the performance of the trust is likely to grow by 2.30% in 2015. This can be attributed to the tough economic conditions. However, in 2016, the growth rate is expected to 7.10%. However, the annual growth rate in the next five years will be 10.33%. Therefore, the company is likely to grow at a slower rate than the rate at which it has grown in the past. The growth rate that will be used in 2017 is 10.33%. The forecasted performance for 2016 and 2017 are presented below.

2015 2016 2017
Revenue 1,723,817 1,846,208 2,036,922
Net operating income 1,160,180 1,242,553 1,370,909
FFO 972,909 1,041,985 1,149,622

Internal and external revenue

In most cases, there is always a direct association between the growth of revenue and assets. This implies that growth of sales revenue should supported by a corresponding growth in assets. Further, an increase in assets can be financed either through debt or equity. Therefore, the type of growth will determine the source of the additional capital. In the case of internal or same store growth, additional capital can be raised by asking shareholders to provide the required finances. In this case, funds are not raised externally. The growth process is considered to be slow and a business may grow at a slower pace than the rivals. On the other, a company is in a position to maintain a healthy leverage position since capital is not raised externally. In the case of external growth, the capital that is required to fund growth is raised externally. External growth can also be attained through merger and acquisition. This growth strategy enables a company to grow at a high rate. However, if funds are raised externally, then it is likely to interfere with the leverage level of a company. Further, the business combinations are likely to cause disagreements between the managers because of different cultures. Therefore, the revenue growth is directly associated with a source of finance.

Most companies improve their bottom line using two approaches, these are, growing revenue and cutting cost. It is important to evaluate whether the income in income is achieved through either of these two approaches. This is based on the fact that the growth in revenue is sustainable while cost cutting is not sustainable. Cost cutting is a strategy that can only be used in the short term because even though there may be opportunities to cut costs, these costs are critical in achieving the revenue targets. Thus, cutting costs may as well lead to a reduction in revenue and even create a snowballing sequence of profit decline in the future. Even if a $1 increase in revenue and a $1 reduction in cost have a similar effect on the bottom line, the two should be treated differently because cost reduction has a negative impact on the entity while revenue growth has a positive impact.


Avalonbay Communities, Inc. (2015). AVB 10-K 12/31/2014 – annual report. Web.

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